Diminishing dependence: A report on shrinking US oil imports by the EIU
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Diminishing dependence
US oil imports have been declining due to rising domestic oil production and lower oil demand. The Economist Intelligence Unit’s latest report on shrinking US oil imports, Diminishing Dependence, assesses the implications of the following trends:
1. Shrinking imports
The share of imports in total US oil consumption will continue to dwindle, but the US will remain a net oil importer. In 2006, net oil import dependence soared to 60%. However, according to the report, by the first half of 2013, net important dependence dropped to 36%. This is due to rising domestic US oil production and falling demand, which has reduced the need for refiners to import crude oil. In addition, US refiners have ramped up exports and reduced imports of oil products. This oil product trade balance has been so comprehensive that the US is now a net exporter of oil products.
2. Implications of lower imports
The shrinking US oil import requirements will be met increasingly by exporters in the western hemisphere. The world’s largest oil market is a long way from complete self-sufficiency. The EIU forecasts that US oil production will continue rising due to expanding unconventional supplies, while consumption will remain stagnant owing to lackluster demand from transport and other sectors. According to the report, “Although the gap between US production and consumption will narrow further, the US will still need to import oil.”
3. OPEC to look East
OPEC suppliers will compete more heavily to seek customers elsewhere, mainly among resource-deficient non-OECD Asian economies. As US oil imports shrink further, competition will intensify for all traditional suppliers. Over the long term, energy trade between the Persian Gulf region and the US will diminish. The IEA forecasts that US crude oil imports from the Middle East will drop. Suppliers in the Middle East and West Africa will instead seek growth in Asia, especially China.
4. Middle East is still strategically important
Despite relying less on Middle East oil, the US is unlikely to disengage from its strategic interests in the region. These non-energy related interests include its alliance with Israel and efforts to contain Iran. As diplomatic and commercial ties between the Middle East and Asia tighten, the US will seek to maintain its influence in the region. With China becoming more dependent on Middle East oil, the US’s prime strategic influence in the Persian Gulf could serve as a source of leverage over decision makers in the Chinese capital, Beijing.
5. No oil market is an island
Oil is a fungible commodity that is traded globally and prices are set internationally. According to the report, “simply producing more oil will not insulate the US from external shocks.” One example cited is the value of the US oil import bill. Even though net US oil import volumes have fallen dramatically, the impact on the net oil import bill has been limited because of high oil prices. Since oil accounts for a major share of the total cost of US imports, high prices reduce the benefits that lower oil imports would otherwise have for the US balance of trade performance.
Despite growing self-reliance, other factors will influence the US oil market and the price Americans pay. These include OPEC efforts to defend oil prices and maintain state revenue, stronger oil demand growth in non-OECD economies, political turbulence in the Middle East and civil conflict in oil-producing states. Therefore, shale and light, tight oil production will be sensitive to any sudden movements in global prices.
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By : Energy Market Authority